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Fin 370/Finance for Business

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Initial Public Offerings
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FIN 370/Finance for Business
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Initial Public Offerings
Private companies transform into public companies to expand and attract investors. To do this they begin selling common stock to institutional investors who then sell the stock to the general public through a securities exchange. According to Mayo, 2012, “If this sale is the first sale of common stock, it is referred to as an initial public offering (IPO).” In this essay, we will attempt to describe the initial public offering for the global firm, Facebook, Inc. We will describe the role of the investment banker and underwriter, the role of an originating house and a syndicate, explain the pricing of the issue, discuss some of the risks involved in the public offering and how the securities laws deal with them, and discuss any foreign exchange risks the company can face with ideas about how to mitigate them. The first thing Facebook needed to do to launch their IPO was to hire an investment banker and an underwriter.
Facebook hired thirty-three investments banks who acted as brokers to bring together individuals with funds to invest in Facebook. The underwriters in those investment banks together with Facebook agreed on a certain amount to raise on the IPO. Their underwriters provided several services, but the main role is basically to take responsibility of selling those shares to investors. If they fail to sell the shares, they still owe the agreed amount to Facebook. The investment bankers and their underwriters agree to assist Facebook in the sale of their shares of stock for a percentage of the gross sale. We will now discuss the role of the originating house and the syndicate.
According to The Spaulding (2014) website an originating house is explained as “Sometimes the investment bank will enlist the help of other investment banks to sell the securities, forming…...

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